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Los Angeles is raising rates on water and power. According to the LA Times, the rates are going up 37% over the next four years. This rate increase has several objectives. The City of Los Angeles is operating in the red and water and energy bills are one way to make up the shortfall. Mayor Antonio Villaraigosa has an additional plan in this rate hike. During the 2008 presidential campaign, the candidates debated over green jobs. Green jobs include new work building windmills and solar plants, designing new ways to construct the power grids to transport renewable energy, and even low tech jobs such as painting rooftops. The mayor’s plan is to add new jobs to revitalize the Los Angeles economy, as many as 18,000 according to the Los Angeles Times.

Not all of the rate hike is going toward green jobs. According to EGP News, three quarters of the rate hike pays for current water and power systems provided by the Los Angeles Department of Water and Power, and one quarter of the rate hike pays for new clean energy systems. The bill also implements a larger rate hike on users that consume more water and power, as well as businesses. The quarter of the rate used to provide green jobs and new power sources is called a carbon reduction surcharge.

The carbon reduction surcharge is required by California law. State law penalizes utilities that do not switch over to renewable energy. Failure of this bill costs the City of Los Angeles as much as $300 million in fines, according to the mayor, as reported by NBC Los Angeles. Carbon reduction surcharges are promoted by the former Vice President and green energy advocate Al Gore. Al Gore is pleased with Mayor Villagairosa’s plan, according to LAist.

Or why a business would still have to keep these records even if there was no climate change. We still would not be able to rely on carbon based fuels to their current extent, and it would still be necessary to account for potential risks based on their use.

Recall that all petroleum based resources are being depleted. The famous engineer M. King Hubbert predicted that the United States would eventually drain its oil reserves and turn to imported petroleum. Eventually the other countries would start running low as well, as Britain depleted the fields in the North Sea and Mexico and Saudi Arabia are exhausting their reserves. Eventually the oil companies will be forced to turn to more difficult to reach oil sources, such as the bottom of the ocean, shale rocks, and reservoirs of impure, high sulfur oil.

This will definitely raise petroleum prices, so any company that currently uses just in time inventory and has long supply chains is extremely vulnerable to a sudden price spike like the one that occurred in the summer of 2008. Since petroleum prices affect all inputs, this will add a significant amount to cost of goods manufactured and cost of goods sold in the future. It is possible to estimate the increase in oil prices, although this is complicated by the rumors that many companies and nations are overstating their reserves. Natural gas is also a limited resource, so similar characteristics apply.

Petroleum sources will still create external pollution. Especially with lower quality sources which are more likely to be present in the future, sulfur and nitrogen released in the burning fuel will still create harmful compounds in the atmosphere, such as smog and acid rain. Note that these types of pollutants can travel large distances, including over the ocean. Factories in China are capable of releasing particles that can cross the Pacific Ocean and cause harmful effects in the United States. Since these types of effects can create a negative externality that places a cost on another nation, it is also likely that new international treaties and laws will be passed which restrict a company’s actions. Coal usage creates the same issues when it is used as a fuel source.

Al Gore makes some of the same arguments, emphasizing that not only are oil resources dwindling, but that their concentration in unstable regions of the world is a cause of resource wars. He also mentions that cap and trade legislation has many flaws, although the alternative of doing nothing would risk much greater negative consequences. Cap and trade can also have positive effects on a company’s balance sheet, depending on the situation it is in. Gore ends the article with a Churchill quote, “Sometimes doing your best is not good enough. Sometimes, you must do what is required.” Inspiring and brings to mind another Churchill quote, “One ought never to turn one’s back on a threatened danger and try to run away from it. If you do that, you will double the danger. But if you meet it promptly and without flinching, you will reduce the danger by half.”